Wall Street

How Carl Icahn came to join Herbalife's fight against Bill Ackman, igniting one of the biggest battles Wall Street has ever seen

The Icahn-Ackman showdown: 5 years later
The Icahn-Ackman showdown: 5 years later

By any standard, Jan. 25, 2013, began like any other for the thousands of traders, money managers and financiers making their way to Wall Street's canyons that morning, albeit with a snow-dusted commute — the first of the season.

But by 1 p.m., it wasn't the wintry weather topping the tape, but a public brawl so outrageous and audacious that few could believe what had just taken place. For the better part of the previous hour, investing titans Carl Icahn and Bill Ackman had hurled insults at each other on live TV – my CNBC program — bringing trading to a near standstill in what some would call the greatest moment in the history of financial television.

It would go on to become one of the biggest battles Wall Street had ever seen — a fight to the finish with the multilevel marketing company Herbalife caught in the middle. Ackman had massively shorted the stock, a billion-dollar bet that came with a bold claim. Herbalife was a pyramid scheme, he charged, whose stock was destined for the dumpster.

Here's some of the backstory about the battle over Herbalife, whose CEO at the time was Michael Johnson. (Fair warning, the following excerpt contains some graphic language.)

Michael Johnson was in church.

It was Christmas Eve 2012, just days after Ackman made his presentation on Herbalife. The CEO had arrived early with one of his sons, hoping for something of a miracle—to save a dozen or so seats for family and friends who would join them for the pre‑holiday Mass in fifteen or twenty minutes. Standing in one of the pews, Johnson and his offspring tried their best to wave off the inquiring eyes, when his mobile phone rang.

"No Caller ID" read the screen.

Thinking it was his wife calling, Johnson walked outside into the California night and hit the green "Accept" button on his iPhone.

"Hi Michael, it's Carl Icahn," said the voice on the other end in a friendly and engaging tone. "I don't get this Ackman thing."

Johnson had no idea how Icahn had gotten his number, but couldn't talk—his wife had just shown up and was waving for him to hang up.

It wasn't a request.

"But it's Carl Icahn . . . , it's Carl." Johnson said, unable to even finish the sentence.

Johnson sheepishly told Icahn he'd have to call him back the next day and hung up the phone, somewhat abruptly.

The next afternoon, on Christmas, Johnson went to a quiet spot inside his Malibu mansion and dialed Icahn's number. Not one to beat around the bush, Icahn got right to the point.

" 'I don't think this guy Ackman is right,' " Johnson recalled Icahn saying. "He said he was going to take advantage of that and get in on the other side."

Johnson had never met Icahn but knew of his tough‑as‑nails reputation. He also figured that having the iconic investor in his corner was a potential game‑changer in the fight with Ackman. It wasn't that Dan Loeb was chopped liver—he wasn't—but he also wasn't Icahn—a billionaire many times over who answered to no one. Plus, Icahn had something that Loeb didn't—staying power. Icahn's cash hoard, estimated to be nearly $20 billion at the time, was almost all his own, meaning he didn't have to worry about the interests of outside investors. Icahn's fiduciary responsibility was to Icahn himself. Icahn was also more than happy to mix it up anywhere, at any time, which Johnson knew could be a great asset against a guy like Ackman, who was loud in his own right. "We had many people lined up against us that to have somebody lined up with us—it's a huge positive," said Johnson when we spoke about the development.

The substance of the Icahn/Johnson call remained a secret until January 16, 2013, when a Wall Street Journal headline splashed across the paper's website. It simply read: "Icahn Takes Herbalife Stake."

The Journal 's Juliet Chung reported that Icahn had taken what amounted to a "small" position in Herbalife and that he, or one of his associates, had recently met with the company's management.

Despite the news, Herbalife shares fell 3.8 percent on the day to close at $45.06. Perhaps it was because most observers figured Icahn was simply along for the ride, content to ride shotgun on Herbalife with Chapman, Hempton, and especially Loeb, whom he had a great amount of respect for as an investor. It didn't take long for Icahn to make it clear that he had other plans.

One week later, on the afternoon of January 24, Icahn appeared on the Bloomberg business TV network but refused to even discuss whether he'd bought any Herbalife shares.

"I'm going to sort of duck that question," Icahn said coyly when asked by the show's host, Trish Regan, if he'd gone long on the stock. But while Icahn may have been reticent to talk about Herbalife directly, he didn't hold back when it came to Ackman himself and his over‑the‑top tactics.

"Look, it's no secret to the world and to Wall Street—most guys on Wall Street I sort of like and get along with—it's no secret that I don't like Ackman. I don't respect him and I don't like him," said Icahn with stunning ease. "But that doesn't mean that I'm going to go in and buy stock in a company necessarily just to get him—frankly I don't like the way he did this anyway. I think if you go short, you go short and hey if it goes down you make money—you don't go out and get a room full of people and badmouth the company. If you want to be in that business, why don't you just go join the SEC?"

It was riveting television. Icahn lit into his nemesis in a barrage of insults.

"I will tell you—I dislike the guy, I don't respect him—I've done business with him and he wasn't forthright," said Icahn before the segment ended.

Icahn was alluding to the old Hallwood dispute, when he and Ackman had ended up in that ugly legal fight during the last days of Gotham. The beef ultimately cost Icahn $4.5 million on what the financier felt was a technicality. The ruling had enraged him, partly because of the hefty check he'd had to write, but also because of Ackman's attitude afterward. Ackman had gloated about the victory in the New York Times, which Icahn felt had violated a decades‑old code on Wall Street—never rub it in the other guy's face, no matter how gratifying the win.

Icahn had never forgiven Ackman for it, and the reported Herbalife position, no matter how small it was said to be, had many wondering if his long‑awaited chance at payback had finally arrived.

While Icahn was going after Ackman on television, I was strolling through CNBC's newsroom, when I stopped by the desk of a show producer named John Melloy, who was watching the spectacle on one of the four TV monitors atop his desk. Melloy ran the Halftime Report, which I hosted. Neither of us could get enough of what we were seeing. After the segment wrapped, I went back to my desk and impulsively emailed Ackman, whom I had never met before, asking if he wanted to respond to Icahn directly. I got my response later that evening, sitting at a table inside the lounge at the Surrey Hotel, on Manhattan's Upper East Side, waiting to have dinner with an acquaintance, thumbing through my emails to pass the time.

A message from Ackman suddenly popped up, saying he was putting the finishing touches on a statement and would send it to me first, momentarily. It was pay dirt, I thought.

A few seconds later, it appeared in my inbox:

"On March 1, 2003, on behalf of my former fund, Gotham Partners, I entered into a contract with Carl Icahn, signed by him, to sell him a 15% stake in Hallwood Realty Partners. He paid my investors $80 per share and agreed to what he called "schmuck insurance." The agreement provided that he would pay my investors an earnout equal to 50% of his profit on Hallwood after he received a 10% annual return if he "sold or otherwise transferred" his shares for value within three years. Fewer than 13 months later on April 14, 2004, HRPT Property Trust acquired Hallwood. As a result, Carl and the other Hallwood shareholders received $136.16 per share in cash for their shares.
"Under the terms of our agreement, Carl owed my investors about $4.5 million. He refused to pay. I was forced to sue him on behalf of my investors. On September 6, 2005, the court awarded us summary judgment and found the agreement to be "clear and unambiguous." He again refused to pay and appealed. We won on appeal and Carl was forced to post a bond for what he owed us and appealed again. In general, Carl waited to the last few days to appeal in order to delay the inevitable. After eight years and Carl's appeals of the judgment were denied, in 2011 the Court forced Carl to pay my investors the $4.5 million they were owed plus 9% interest per year from the date of the sale.
"After Carl paid my investors, he called me up, congratulated me on winning, and said that he wanted to be my friend. I told him that I had no interest in being his friend.
"Carl Icahn is a great investor, but, in my experience, he does not keep his word."

Within minutes, the release went public.

"Bill Ackman Fires Back at Carl Icahn" read the Business Insider headline that posted at 8:31 p.m. that night.

I asked Ackman if he'd come on my show the following day at noon to personally respond to Icahn's so personal takedown. To my surprise, Ackman readily agreed.

"Sure, I'd be happy to," he said.

I emailed the show's producers, telling them of my coup. The stage was set—or so I thought.

Not even five minutes after Ackman had agreed to come on my show, my phone rang again. Again, it was Ackman.

"You know," he said, sounding exasperated by the evening's events, "I'm not going to come on. This whole Icahn thing is a sideshow. I promise that I'll come on your show when I have something substantive to talk about."

"OK," I responded, as I tried to hide the obvious dejection. I headed back to dinner, where my friend was waiting, when my phone rang again. Once again, I excused myself and headed into the small hotel lobby when the voice on the other end said, "Fuck it, I'll do it."

He didn't stop there. "Carl's an asshole . . . he fucked me . . . he's a fucking asshole!"

It was on.

This article has been excerpted from "When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle" by Scott Wapner. Copyright © 2018. Available from PublicAffairs, an imprint of Perseus Books, LLC, a subsidiary of Hachette Book Group, Inc.